I see that GCFB signed into another agreement with the Dunham group. The new group DHW which stands for Dunham, Hey and Wagenheim will lease equipment to GC on a 5 yr lease at 20% of cost of leased items plus 5.4% over the rate that DHW will get from there lending institution. It appears that there is more money to be made in off shot businesses than there is from stock appreciation. GCFB already pays Mr. Wagenheim several thousand dollars a year for putting his personal guarentee on a couple of seperate arrangments. The new agreement also allows the Dunheim group to raise the lease on the buildings they build for GCFB at 5yr increments. Some of you out there already think that the lease rates are to high. Read into the latest press release and give me your feedback. Thank you.
<<I wonder what caused GC to discontinue the equip. lease with DHW.>>
It was nothing more than bridge financing. Everyone was squaking about 14% interest, but think about how much more dilution we would have had if the shares were sold at $3.50 instead of $5.35.
Remember, the key is to get to 26 stores as quickly as possible. With less than 26 stores they lose money. The longer they delay, the more money they lose.
They're now set.
I wonder what caused GC to discontinue the equip. lease with DHW. Was it the board, other share holders that agreed with me and told GC board what they thought of the lease package or was it the SEC. Maybe we will find out tomorrow. I found this message that I posted on 9/25/06 that I thought the lease deal didn't past the smell test, others disagreed with me at the time.
<<I would think that management could get some lending institution to believe in its concept and borrow money to it at a lower rate then what the insiders are borrowing money to the company for.>>
If you think about it, since there are literally no assets available to secure the loan, it's basically an unsecured loan. They don't have the luxury of doing an SBA loan. SBA loans carry a much lower rate because the government is the one promising to pay if the borrower does not.
If you get some time, go read some notes to financial statements of some heavily leveraged unprofitable public companies and see what kind of financing terms they obtain. Don't forget, the bankers have people to answer to as well. They can believe in the plan, but at the end of the day they still want collateral.
<<I do not believe it is in the best interest of the stock holders when managers and close ties to the management benefit from financial transactions with the company.>>
Your point makes sense, but at least with insiders involved, they also have a vested interest in seeing the company succeed. If things get rocky, the insiders are going to be more flexible.
<<What benefit is it for them to try to refinance the debt with someone else down the road at a lower rate when they would be taking money away from there own pockets by doing it?>>
The bejillion shares or so that they own will be worth a hell of a lot more than 5.4% of $16M. Assuming they burnt thru the whole LOC, the $864k/yr in interest is a pittance. Wag's 20% would be $172k/yr. He can make over half that back based on the incentives in his pay plan alone without the risk of having to guarantee the debt.
Believe it or not, I think it's good news. Yeah, the rate sucks, (13.9) but it's not like the company can borrow the money on it's own, and in the near term it's a much better alternative than dilution. They probably saw the cornhole deal they got from the lease company on the three store deal and felt they could put a better package together. As for Wag's current 3% guarantee fee he gets now, look at it this way - if the company goes broke, he's on the hook for all of it. The company would not have been able to get financing otherwise so it's a reasonable expectation.
What the agreement does is free up a bunch of cash (that they don't have) and raises the possibility that they can finish out the 4-6-8 plan without more dilution. If they can hold off the secondary until the cluster is complete, that would be huge. They're not that far away from being cashflow positive.
As for the building terms getting amended, I'm still trying to figure that one out. Apparently there were fixed rent increases built into the original agreement. Until we figure out what those were it's hard to pass judgement on that facet. The change in terms could be either better or worse for the company.
Bottom line: Get the 4-6-8 done by whatever means necessary, prove it to be extremely successful & profitable, and do a big secondary go get rid of the debt and put the company on solid financial footing so we don't HAVE to rely on Dunham and can negotiate better terms from a position of strength.
Your're right Honda --- I recently met with Don Dunham and with this lease deal they think they have enough money to finish the build out of the remaining stores. You are also right about the lease. This one is different because it's on lease land only from General Growth and the building reverts to General Growth at end of lease, therefore no "return of principle" to the lease investors. Somethings got to "sweeten the deal" or no one will put up the money to build the store.
If you borrow $1,400,000 on a 5 year loan at 13.9% payments come up to $32,503.02/month or $390,036.24/year for 5 years. This is only making payments on fixtures and equipment. How do you expect the store to show a profit or have any cash flow in the first five years after adding your other expenses?